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IFAP
FSA Information for Financial Aid Professionals
U.S. Department of Education

Citations: (R)682.212
AsOfDate: 12/31/95

Prohibited transactions.

(a) No points, premiums, payments, or additional
interest of any kind may be paid or otherwise extended to any
eligible lender or other party in order to--

(1) Secure funds for making loans; or

(2) Induce a lender to make loans to either the
students or the parents of students of a particular school or
particular category of students or their parents.

(b) The following are examples of transactions that, if
entered into for the purposes described in paragraph (a) of this
section, are prohibited:

(1) Cash payments by or on behalf of a school made
to a lender or other party.

(2) The maintaining of a compensating balance by or
on behalf of a school with a lender.

(3) Payments by or on behalf of a school to a lender
of servicing costs on loans that the school does not own.

(4) Payments by or on behalf of a school to a lender
of unreasonably high servicing costs on loans that the school
does own.

(5) Purchase by or on behalf of a school of stock of
the lender.

(6) Payments ostensibly made for other purposes.

(c) Except when purchased by the Student Loan
Marketing Association, an agency of any State functioning as a
secondary market or in any other circumstances approved by
the Secretary, notes, or any interest in notes, may not be sold
or otherwise transferred at discount if the underlying loans were
made--

(1) By a school; or

(2) To students or parents of students attending a
school by a lender having common ownership with that school.

(d) Except to secure a loan from the Student Loan
Marketing Association or an agency of a State functioning as a
secondary market or in other circumstances approved by the
Secretary, a school or lender (with respect to a loan made to a
student, or a parent of a student, attending a school having
common ownership with that lender), may not use a loan made
under the FFEL programs as collateral for any loan bearing
aggregate interest and other charges in excess of the sum of
the interest rate applicable to the loan plus the rate of the most
recently prescribed special allowance under Sec. 682.302.

(e) The prohibitions described in paragraphs (a), (b),
(c), and (d) of this section apply to any school, lender, or other
party that would participate in a proscribed transaction.
(f) This section does not preclude a buyer of loans
made by a school from obtaining from the loan seller a warranty
that--

(1) Covers future reductions by the Secretary or a
guaranty agency in computing the amount of loss payable on
default claims filed on the loans, if the reductions are
attributable to an act, or failure to act, on the part of the seller or
previous holder; and

(2) Does not cover matters for which a purchaser is
charged with responsibility under this part, such as due
diligence in collecting loans.

(g) Section 490(c) of the Act provides that any person
who knowingly and willfully makes an unlawful payment to an
eligible lender as an inducement to make, or to acquire by
assignment, a FFEL loan shall, upon conviction thereof, be
fined not more than $10,000 or imprisoned not more than one
year, or both.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3,
1082, 1097)